National Insurance Contributions (NICs) work differently for company directors—and misunderstanding them can cost you. In this episode of the I Hate Numbers podcast, we walk through the 2025–26 rules, salary thresholds, and two key methods of NIC calculation. Whether you take a regular wage or one-off payments, knowing how to handle director NICs can save you money, reduce stress, and keep HMRC off your back.
Main Topics & Discussion
How Director NICs Differ From Regular Employees
- Directors have an annual earnings period, not weekly/monthly thresholds
- HMRC calculates NICs based on total annual earnings
- Irregular pay? No problem—NICs are smoothed out over the year
- Directors are not subject to minimum wage laws
Two Methods for NIC Calculation
1. Annual Earnings Method (Default)
- Works on cumulative pay vs. annual thresholds
- Ideal for directors taking irregular or one-off salary payments
- Flexible but may result in large NIC bills late in the year
2. Alternative Method (Regular Earnings Basis)
- NICs calculated monthly like regular employees
- Ideal for steady monthly salaries
- Requires end-of-year reconciliation to ensure total NIC due is paid
2025–26 NIC Thresholds & Rates
- Primary Threshold (Employee): £12,570 (NIC starts here)
- Upper Earnings Limit: £50,270 (NIC drops to 2% above this)
- Employer NIC Threshold: £5,000 (NIC starts here)
- Employee Rate: 8% (then 2%) | Employer Rate: 15%
Choosing the Best Method
Annual Method
- Best for flexible, irregular salary patterns
- Slower NIC buildup—good for cash flow
- May cause unpredictable deductions
Alternative Method
- Best for steady monthly salary (e.g. £1,200/month)
- Predictable deductions, easier budgeting
- Must reconcile at year-end; risk of surprises if ignored
Salary Planning Options
Option 1: Pay £5,000 Salary
- No income tax, employee NICs, or employer NICs
- Doesn’t qualify as a state pension year
Option 2: Pay £12,570 Salary
- Full personal allowance used
- Triggers NICs but qualifies for state pension
- Check employment allowance rules if sole director
Common Mistakes to Avoid
- Using annual method without tracking thresholds
- Forgetting year-end reconciliation under alternative method
- Assuming £5,000 salary qualifies for pension—it doesn’t
- Missing out on planning opportunities that reduce NIC and tax
Real-World...
